In a Nutshell – Under Pressure

Published on 05 March 2020

ASX Listed Aged Care Company Performance Summary – HY2020

It has been a disappointing six months for the three listed providers who has felt the force of the turbulence within the aged care sector.  Rising labour costs, decreasing occupancy and slow revenue growth continue to take their toll on an industry which has been thrown into a period of unprecedented uncertainty, exacerbated by the Royal Commission into Aged Care Quality & Safety (Royal Commission).

Although the one-off subsidy in FY19 gave some respite to the struggling operators, no such fortune was afforded them in the first half of FY20.  Profitability continues to slide further, with all three players now performing below top quartile averages.

Meanwhile, the Commonwealth has adopted a “watch and wait” stance to the rapidly deteriorating aged care industry, awaiting the outcome of the Royal Commission before announcing any funding commitments.  Aged care providers and the industry as a whole are being pushed closer and closer to the brink, with more homes closing.

Consumer payment preferences for Refundable Accommodation Deposits (RADs), which act as a primary capital source for the aged care providers, have continued to decline proportionately across the listed players. Residents are increasingly choosing to pay a Daily Accommodation Payment (DAP) or a combination of a RAD and DAP.  Although this provides uplift to operating income, it may hinder the provider’s ability to expand and refurbish services moving forward.

With the approach of the Baby Boomer generation, substantial investment into aged care services is required for the future.  However, in such a volatile environment, providers are losing appetite for innovation, acquisition and capital development, with Regis all but halting some of its major Greenfield developments.

Finally, the spread and extent of the COVID-19 outbreak is yet to be fully realised, and as we write this, residents of a residential care home in NSW have been infected by the virus.  This issue adds further fuel to the fire and international authorities have indicated that the elderly and those with comorbidities are at the highest risk.

The aged care industry can only go for so long before facility closures and defaults become more commonplace.  Legislative uncertainty, declining financial performance and changes in resident preferences all place the listed providers under significant pressure to provide quality care whilst maintaining shareholder value.

To read more of our report, please see below